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South Africa: Repo Rate Remains Unchanged at 5%
Source: www.SAnews.gov.za
Source Date: Friday, October 19, 2012
Focus: ICT for MDGs, Internet Governance
Country: South Africa
Created: Oct 19, 2012

Since the previous meeting of the MPC in July - at which the repo rate was cut by 50 basis points - the global growth outlook has weakened.

The MPC had noted that despite a number of upside supply side risks, inflation is expected to remain contained within the target range over the forecast period. The growth outlook, however, has deteriorated somewhat in response to both domestic and global developments.

The central bank’s inflation forecast reflected a moderate deterioration for 2013 as compared to its previous forecast. The bank now expects inflation to average 5.3% in the final quarter of 2012, 5.2% in 2013 and 5% in 2014.

“The near-term deterioration is mainly due to higher expected petrol and food inflation. Core inflation appears to be well contained with a peak of 4,9 percent expected in the final quarter of 2012, compared with the previous forecast peak of 5,4 percent. This measure is now expected to average 4,6 percent in both 2013 and 2014,” said Marcus.

The petrol price is expected to rise again in October after rising by 93 cents in September. Since August the petrol price has increased by an accumulative R1.15.

Global growth outlook remains weak while global inflation is relatively benign given the weak demand, but supply side shocks in the form of higher food prices, due to droughts in the US and some parts of Eastern Europe, and resilient international crude oil prices pose a risk to the outlook.

The rand, which has fluctuated within a range of R8.10 and R8.50 against the US dollar, appears to have decoupled from the euro and reacted to domestic issues, including the wider-than-expected current account deficit that was released by the Quarterly Bulletin, and developments in parts of the mining sector following the tragic events at Marikana.

The bank forecasts the current account in 2012 that the deficit will be in the order of 5 percent of GDP. This is due to declining commodity exports and increased imports and service payments.
“The domestic economic growth outlook remains constrained by the weak global outlook and by recent work stoppages in the mining sector.”

Real GDP growth is now expected to average 2,6 percent in 2012 and 3,4 per cent in 2013, compared with 2,7 per cent and 3,8 per cent in the previous forecasts. Notwithstanding these downward revisions, the Bank sees further risks to the downside.

Answering a question on the impact of the strikes on the domestic economy, the governor said: “The sector is volatile and the impact of the strike on economic growth will depend on several factors including the length of the strike and how it spreads to other sectors.”

She said the question of labour relations was a big challenge, adding that those in the mining sector needed to be addressed.

Analyst had expected the repo rate to remain unchanged. The MPC will hold its last meeting for the year from 20 to 22 November.
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